May, 2019

Regulatory and Conceptual

Framework for Financial
Statements & preparation of
Financial Statements
Financial Accounting and Reporting

Basic knowledge

Ibrahim A Ganiyu
Associate Lecturer (ACCA)
University of Westminster
Financial Accounting Financial Reporting

Whenever there is a corporate failure such as the collapse of Enron (2001, US) or problem with any
business organisation such as TESCO scandal (2014, UK), both the Accountants and the
Accounting profession are under cranky attack by general public, various stakeholders and
commentators, some of the criticism is due to inadequate knowledge of how the accounting
profession is regulated, leading to users focusing on the symptom rather than the root cause of the
problem and not being able to ask the right questions at the right time.
This write-up focuses on the regulatory environments governing the accounting profession, the
understanding of which will help the students and various users of the financial statements to realise
that accounting, just like any other discipline, is regulated and what Accountants can and cannot do
is restricted by the regulatory system in place.
According to IAS 1, “financial statements are a structured representation of the financial position and
financial performance of an entity” the objective of which is to “provide information about the financial
position, financial performance and the cash flow of an entity”. Hence, the financial statement shall
provide information on the following components to achieve its objective.
 Assets
 Liabilities
 Equity
 Income and expenses
 Cash flows
The components are represented in the following financial statements:
 Statement of profit or loss and other comprehensive income
 Statement of financial position
 Statement of changes in equity
 Statement of cash flows
 Narrative notes to the statements
The above statements are called financial statements and also known as company’s accounts, and
the statements are included in the annual report of an entity. There is an erroneous believe that the
preparation of the financial statements is the responsibility of the Accountants, however, according
to the Companies Act, it is the responsibility of the company’s director to prepare timely, true and
fair financial statements at least annually. In practice the help of accountants is always employed to
prepare the financial statements but all source documents are provided by the company’s director
based on transactions for the period and accountants should believe that the documents provided
by the director are correct and true unless otherwise proved, also all areas of value judgements are
the responsibility of the directors. The work of other experts is also involved in the preparation of the
financial statements. So when there is problem with the company and financial statements are being
scrutinised, accusing fingers should not only be pointed at the accountants. In fact the accounting
profession is heavily regulated.

Professional Lecture Note extract 1 Ibrahim/2019

Financial Accounting Financial Reporting

Users and their information need

Tom Clendon (2015), pointed out that the financial statements “are prepared to provide financial
information about the reporting entity that is useful to existing and potential investors, lenders, and
other creditors in making decisions about providing resources to the entity”
The providers of the resources to the entity are collectively referred to as stakeholders. A
stakeholder is any person or group that can affect or be affected by the information in the financial
statements.

 Many groups use financial statements information provided by an entity for different reasons,
below are user group and financial statement information needs.

Stakeholders Financial Statements Information needs

 Managers do use accounting information to plan, control and
Business Managers coordinate business activities and to make financial
decisions
 They use the information to appraise the manager’s
performance and determine company’s direction
Business owner’s
 To determine amount of finance (money) needed
(shareholders)
 To know if cash can be withdrawn by the owner or that
dividend can be paid to the shareholders
Inland Revenue  For tax purposes
 To plan their career, for wages and salary improvement and
Employees
other benefits, job security, prestige sense of achievement.
 To know the company’s financial ability to pay for goods on
Trade suppliers
credit and access the creditworthiness of the company.
 To know that they are in safe hands
Customers
 For area development purpose
Financial analyst and
 To provide information for potential investors
advisers

Government agencies  For national statistics and allocation of Industrial Resources

The public  For environmental reasons, job and career reasons

It can be said that factually everyone needs a company’s financial information for one reason or
another, hence, the financial information must be prepared carefully, adhering to a uniform set of
rules and must not be prepared negligently.

The accounting profession must be regulated because many stakeholders may rely on the financial
information and any negligently prepared financial statement may have serious consequence both
for the entity and the various stakeholders.

Professional Lecture Note extract 2 Ibrahim/2019

Financial Accounting Financial Reporting

Regulatory Framework for Financial Reporting and Accounting Practice

The preparation of the financial statements is regulated to:

 Ensure that the financial statements of the various entities are prepared using the same rules and
regulations for comparison purposes
 To ensure that the content of the financial statements has the required quality that can be relied
upon by the various stakeholders of the statements.
The following are the regulatory arms of the accounting profession:
1. The law of the land (Companies Act)
2. Reporting standards, either national or international standards (IASs & IFRSs). The
international reporting standards are covered in this book.
3. IASB Conceptual Framework for Financial Reporting

1. Law of the land

The law of the land in form of the Companies Act requires all companies to prepare financial
statements that show financial dealings or transactions of the entity during a specific period
under consideration. By law:

 All registered companies must prepare a statutory financial statement detailing the
business transactions for a specific period of time.
 Unregistered companies must prepare a form of self-assessed financial statement detailing
the business transactions for a specific period of time.
Hence, all business entities must prepare financial statements one way or another, this
makes the study of accounting interesting and rewarding.
2. Reporting standards (IASs & IFRSs)
Reporting standards are national or international standards that provide specific guidelines on
how to treat and represent transactions in the financial statements.
The national standards are country specific standards while the international standards are
meant for any country that wishes to join the international community in harmonising reporting
standards, the international standard is covered in this book
The international reporting standards are applied to registered companies and companies
quoted on a recognised stock exchange market, in a country where international standards
apply.
The International Accounting Standards Committee Foundation (IASC Foundation) is
responsible for overseeing the issue of International Reporting Standards. The committee
members are not involved directly, in the setting of the standards, but oversee the following
bodies:
 The International Accounting Standards Board (IASB)
 The Standards Advisory Council (ISAC)
 The International Financial Reporting Interpretations Committee (IFRIC).

Professional Lecture Note extract 3 Ibrahim/2019

Financial Accounting Financial Reporting

The international accounting standards board (IASB)

The IASB is responsible for the development of new international standards and adjustment of
existing standards.
From 2001, all the international financial reporting standards issued have been assigned an IFRS
number and title e.g. IFRS15 Revenue from Contracts with Customers
 Previously, the international standards were issued by the international accounting standards
committee (IASC) and all standards were called International Accounting Standards (IAS),
then the standards were assigned an IAS number and title e.g. IAS 2 Inventory.
 In 2001 the IASB replaced the IASC as the body responsible for issuing international
standards and the name of standards issued by the board are to be called International
Financial Reporting Standards (IFRS).
 However, the existing IASs were adopted by the IASB, the board intends to replace all the
existing IASs gradually. Hence IAS and IFRS have equal status until the IAS is replaced by
an IFRS

Composition of international standards

Each international accounting standards (IASs) and International financial reporting standards
(IFRSs) contains:
 a unique identification number and title, e.g. IAS 7: statement of cash flow, IFRS 5: Non-
current assets held-for-sale and discontinued operations
 Introduction and objectives of the standard
 Definition of terms
 Each standard gives guidelines on the treatment and recognition of a particular item in the
financial statements, e.g. IFRS15 Revenue from Contracts with Customers outlines the
guiding principles on transactions that is included in the sales amount
 Each standard includes disclosure note requirements, i.e. narrative notes to explain the items
recognised in various financial statements and also to explain financial and non-financial
items that do not require recognition but were disclosure may be necessary to help the
economic users of the financial statements. This is particularly useful:
 To enhance understandability of the financial statements
 To enhance comparability of the financial statements
 To enhance transparency
 To clarify areas of concerns
 To know the techniques and valuation methods used to derive the value of assets and
liabilities, especially where alternative methods of valuation exist

Professional Lecture Note extract 4 Ibrahim/2019

Financial Accounting Financial Reporting

The standards advisory council (SAC)

This council consists of representatives from different countries.

 The council gives advice to the IASB on the development of new IFRSs.
 The IASB consults with the SAC, to obtain the views and opinions of its members, when new
accounting standards or amendments to existing standards are being considered.

The International Financial Reporting Interpretations Committee (IFRIC)

This committee interprets areas of ambiguities or uncertainties in the accounting standards, the
council provide solutions to questions about interpretation of what the standards mean or how
the standard should be applied to particular transactions and situations.

 When uncertainty arises with the meaning and interpretation of any reporting standard, IFRIC
interprets the rules contain in an IAS or IFRS, and publishes its official interpretation.

Voluntary nature of the application of International Financial Reporting Standards

The aim of the International Accounting Standard Board (IASB) is to issue globally applicable
reporting standards and to encourage companies in countries that have adopted the standard

to apply same reporting principles and guidelines, in order to enhance comparability of

financial statements, especially the comparison of similar companies, and to help investors to
understand the financial statements of companies in any country.
However, it should be noted that the committee responsible for issuing of the standards has no
power to enforce the International Financial Reporting Standards in any country hence, the
application of international reporting standards is ‘voluntary’.

The government of individual countries has the power to enforce the use of international
reporting standards.
Since the introduction of the international reporting standards, some countries have adopted the
standards and made them compulsory for some types of business entity. For example, in the
European Union, public listed companies are required to use IFRSs in preparing their financial
statements.
The public listed companies are companies quoted in the stock exchange market such as
London stock exchange.

Professional Lecture Note extract 5 Ibrahim/2019

Financial Accounting Financial Reporting

3. IASB Conceptual Framework for Financial Reporting

The third regulatory arm is the conceptual framework (CF) also issued by the IASB.
The International Financial Reporting Standards (i.e. IASs and IFRSs) provide specific
guidelines for specific items in the financial statements; however, the standards may not
cover all aspects of every type of business transaction and circumstance, there is always a
need to provide a general guide to serve as a base for the recognition of financial items not
specifically covered by the reporting standards.
Where there are no clear cut guides on a particular financial item, the general principles of
accounting are applied and the general principle of accounting is known as the ‘Conceptual
Framework.’
The general principles are set out in the “conceptual framework for financial reporting” as
issued by the International Accounting Standards Board (IASB)
The conceptual framework is a statement of generally acceptable guidelines that form the
basis of accounting treatment of business transactions
 It is the theoretical principles behind the treatment of business transactions when
preparing financial statements of an entity
 It serves as a reference point for the preparer and users of the financial statements

Purpose of Conceptual Framework

The main aim of the conceptual framework is to provide the statement of generally accepted
principles, which should form the basis for the accounting treatment of business transactions,
in order to help the standard setters, preparers of financial statements, auditors and users of
financial statements and any other party interested in financial statements.
Hence, the conceptual framework is useful in the following areas:
 It assists most standard setters in the development of new and the review of existing
accounting standards.
 It also helps to harmonise national and international accounting standards when both
standard setters used the same framework
 It helps in harmonising various methods of preparing financial statements and enhance
consistency in the preparation of financial statements
 The knowledge of the conceptual framework will also help preparers of financial statements
to apply accounting standards more effectively
 Knowledge of the conceptual framework will assist the economic users of the financial
statements in interpreting the performance of entities
The main criticism of the conceptual framework is that it provides a simplistic single framework
of preparing financial statements for a variety of users, such approach may not meet the
requirement of all users in a different situation

Professional Lecture Note extract 6 Ibrahim/2019

Financial Accounting Financial Reporting

Resolving conflict between the Conceptual Framework and requirement of the specific
reporting standard

It is important to note that the conceptual framework is not an accounting standard and
cannot override the requirement of a specific accounting standard.
The “International Accounting Standard Board” recognises that there may be rare occasions
where a particular standard is in conflict with the conceptual framework. In such cases, the
requirements of the standard should prevail over the accounting conceptual framework.
The Board believes that such conflicts will be eliminated over time as the development of new
standards, revision of existing standards and the framework itself may be revised by the board
based on working experience.

Coverage areas of the conceptual framework

The conceptual framework covers the following areas:

 Underlying assumptions ( known as accounting concepts or principles)

 Qualitative characteristics of financial statement

 Elements of financial statement and definitions

 Recognition criteria of items in financial statements

 Objectives of financial statement

 Compliance with accounting standards

 Measurement of items in financial statement

Professional Lecture Note extract 7 Ibrahim/2019

Financial Accounting Financial Reporting

Overview of Conceptual Framework

Fundamental qualitative  Conceptual framework should  Historical cost

characteristics
 Relevance comply with reporting standards,  Current cost
 Faithful representation the conceptual framework cannot
 Realisable value
Enhancing qualitative override a requirement of specific
characteristics reporting standard  Present value of
 Comparability
 The reporting standard should future cash flow
 Verifiability
prevail in any areas of conflict
 Timeliness
 Understandability


Qualitative Compliance Measurement of items

characteristics of with accounting in the financial
financial statement standards statements

The objective of
Conceptual framework
general purpose coverage areas (scope)
financial reporting

Elements of financial Recognition criteria

Underlying
of items in financial
statement and definitions
assumptions
statements

Conceptual framework and IAS 1  Assets  All items in the financial statement
assumptions:  Liabilities must have cost/value that can be
 Going concern concept (CF)  Equity measured reliably
 Accruals concept
 Income  It must be probable that economic
 Materiality and aggregation
 Expenses benefits associated with financial
 Offsetting
 Consistency concept items will flow to or from the entity
Other traditional and IAS inferred concepts i.e. inflow and outflow of economic
 Matching concept benefit will happen.
 Substance over form
The above are known as conceptual
 Entity concept
 Monetary value concept
framework recognition criteria and is
 Duality concept used by many reporting standards
 Separate valuation concept.
 Historical Cost concept

Professional Lecture Note extract 8 Ibrahim/2019

Financial Accounting Financial Reporting

Conceptual framework: the underlying assumptions

(Also popularly known as the accounting concepts)

The underlying assumption is traditionally called and referred to as accounting concepts and
are guiding general principles behind the accounting treatment of financial transactions in the
financial statements.

Traditionally, there are a number of known accounting concepts but there have been some
changes to what constitutes an accounting concept by the conceptual framework and reporting

standards as published by the International Accounting Standard Board, in light of these

changes, accounting concepts will include the following:

Conceptual framework and IAS 1 accounting concept: the following concepts are gathered

from the conceptual framework and inferred from accounting standard, they are referred to as
the underlying assumptions:

 Going concern concept (conceptual framework)

 Accruals concept
 Materiality and aggregation
 Offsetting
 Frequency of reporting
 Consistency concept

Other traditional and accounting rules inferred concepts

Apart from the above mentioned concepts, there are other complimentary accounting concepts
generally used which are not particularly mentioned in the conceptual framework but are inferred

from various reporting standards, accounting rules and practices. They includes the following:

 Matching concept
 Substance over form (see next page clarification)
 Entity concept
 Monetary value concept
 Duality concept
 Separate valuation concept.
 Historical Cost concept
It is worth mentioning that prudence concept was removed from the list of accounting concepts

in September 2010 when the current conceptual framework was published. The concept
stipulates that caution should be exercised in situations of uncertainty on the amounts to be

Professional Lecture Note extract 9 Ibrahim/2019

Financial Accounting Financial Reporting

recognised in the financial statements, in an attempt to make sure that income, expenses,

assets and liabilities amounts are not under or over-valued

 It states that the profit should be recognised when it is reasonably certain that it can be
earned, e.g. when sales activities are completed, and losses should be recognised as soon
as it is anticipated with evidence.
 It also implies that, where there are two possible values available, great caution should be
taken not to understate or overstate the assets and liabilities of an entity
There is an ongoing debate as to whether to re-instate the prudence concept as one of the
accounting concept with more guidance and clarity because there is evidence that the concept
still served as a foundation to some of the existing reporting standards such as IAS 12 where
deferred tax (DT) liability is recognised in full without any condition but deferred tax asset is only
recognised to the extent that profit will be available to utilise the deferred tax. This is a clear
application of the prudence concept which was removed from the accounting concept but the
standard has not been changed.
Again, the concept of substance over form was also removed from the current conceptual
framework issued in 2010 but substance over form is fundamental to qualitative characteristics
of faithful representation of financial items, so even though it was removed from the accounting
concepts, it is still used by the current conceptual framework when discussing faithful
representation qualitative characteristics of financial statements.
All these make accounting practice more interesting and evolving, not confusing, in my opinion.
Of course this point of view may not be shared by students that just want to pass an exam and
move on, I always say in my class that accounting practice is not as static as before.

Going Concern Concept

Going concern concept deals with the foreseeable future of the company and states that the
financial statement should be prepared with the understanding that:
 The business will continue in operation for the foreseeable future of at least the next 12
months
 The company is not having a liquidation problem
 Any discontinuation of operation or scaling down in operation is planned and for the good of
the company’s future

Accruals concepts
Preparation of financial statements is time bound, i.e. financial statements must be prepared for
a specific period of time, this period of time is known as “reporting period” and the reporting
period should normally be 12 months of operations, although it can be shorter or longer in the
first year of reporting period or due to changes in the end of the reporting period.
Accrual concept deal with business transactions to be included or recognised within the
identified reporting period.

Professional Lecture Note extract 10 Ibrahim/2019

Financial Accounting Financial Reporting

 Accrual concept deals with recognition of business transactions, i.e. income and expenses
for the reporting period under consideration and states that all income should be earned
and expenses should be incurred, recognition should not be based on cash flow.
 Income is earned and expenses are incurred when transactions occur, recognitions are not
be based on a cash flow basis of when expenses are paid or when income is received.
 It simply means that invoice and receipt dates are very important in determining the
reporting period in which invoices and receipts are recognised in the financial statements

Materiality and aggregation Concept

Materiality concept deals with the significance or importance of an item in the financial
statement.
 The concept states that, if the omission, misinterpretation or misstatement of any an item
influences the decision of the economic users, such item is material and should be
recognised in the financial statements with adequate disclosure in the notes to the financial
statements
 The monetary size of the transaction and the nature of the transaction form an important
element of the materiality concept.
 Materiality is considered to be a threshold quality, meaning that information should only be
reported, if it is considered to be material. Too much detail and reporting of immaterial and
small items may confuse or distract economic users. However, all financial items have to be
recognised or disclosed in the financial statements.
IAS 1 states that “An entity shall present separately each material class of similar items. An
entity shall present separately items of a dissimilar nature or function unless they are
immaterial.”

Offsetting
An entity shall not recognise assets and liabilities or income and expenses on a net basis, unless
required or permitted by reporting standard.

Frequency of reporting
The financial statements are prepared to cover annual business transactions i.e. financial
statements produced at least annually.
IAS 1: When an entity changes the end of its reporting period and presents financial statements
for a period longer or shorter than one year, an entity shall disclose the following:

(a) the reason for using a longer or shorter period, and

(b) The fact that amounts presented in the financial statements are not entirely comparable.

Professional Lecture Note extract 11 Ibrahim/2019

Financial Accounting Financial Reporting

Consistency

Items in the financial statements should be treated on a consistent basis, i.e. the same
accounting principles and policies should be applied to the same set of items ‘year in year out’
when preparing financial statements, unless a change shows a fairer and faithful presentation
or changes based on changing in reporting standards
 Consistent accounting principles and policies should be applied to items requiring a value
judgement to enhance comparability.
 Consistent accounting treatment of transactions will help in assessing the performance of an
entity over time and comparing one entity with another.

Other accounting concepts

Matching concept stipulates that the revenue should be matched to the expenses incurred in
earning the revenue for the reporting period under consideration.

Concept of substance over form

All items in the financial statements should reflect the economic substance of transactions rather
than legal form.

 This simply implies that the business transactions should be treated according to economic
reality or commercial intent rather than the way they are constructed legally.
 Substance over form is an important element of faithful representation of items in the financial
statements, according to international accounting standard board framework

 For example, an entity sold goods, i.e. inventory to a finance house with an option to buy it
back at a price above the original selling price. Such transaction in substance is a secured

loan which attracts interest in the form of the amount above the selling price. The transaction

is eliminated from sales amount and cost of sales, should be treated as a loan in the financial
statements, because it is a secured loan in substance.

Entity Concept The business is regarded as a separate entity from the owners.

Monetary value: All items in the financial statement must be able to be quantifiable in monetary
term, i.e. all items to be recognised in the financial statements must have a value, in other words
items that cannot be valued should not be recognised on the face of the financial statements

Duality concept: This concept stipulates that every transaction gives rise to two entries in the
financial statements, meaning that every transaction has a dual nature.
 This concept leads to the general accounting statement of “for every debit entry, there must
be a corresponding credit entry”.

Professional Lecture Note extract 12 Ibrahim/2019

Financial Accounting Financial Reporting

Separate valuation: All items in the financial statements must be capable of being valued

separately.
Historical Cost Concept: Assets and liabilities are initially recognised at their transaction cost
before considering any further changes in value.

Summary

The financial statement is prepared in accordance with the accounting conceptual framework

and reporting standards, knowledge of which will help in understanding the financial
statements.

Professional Lecture Note extract 13 Ibrahim/2019

Financial Accounting Financial Reporting

Conceptual framework qualitative characteristics of useful financial

information

The information presented in the financial statements must exhibit the following qualitative
characteristics according to ‘conceptual framework for financial reporting’ issued by the
International accounting standard board.
The qualitative characteristics are divided into two categories as follows:

Fundamental qualitative characteristics

 Relevance (predictive value, confirmatory value and materiality of information)
 Faithful representation (complete, neutral, free from error)

Enhancing qualitative characteristics

 Comparability
 Verifiability
 Timeliness
 Understandability
The financial information must be relevant and faithfully prepared if it is to be useful for an
intended purpose. The enhancing qualitative characteristics cannot make information useful if
such information is irrelevant or not faithfully prepared.

Fundamental Qualitative Characteristics

Relevance

The financial statement/information is relevant if it can influence and be of help to the users. To
be relevant, the information must be of predictive value and confirmatory value
 The financial statement information will be of predictive value if the users can use the
information as an input to the decision-making process to predict future events
 The financial statement information will be of confirmatory value if the current year financial
information confirms the prediction from the past information
Part of the relevance characteristics of the financial statement/information is that it must be
prepared based on the concept of materiality. The financial statements should include all
material information.
The financial information is material if its omission, misinterpretation or misstatement will
influence the users, such item is material and recognised in the financial statements with
adequate explanatortory/disclosure in the notes to the financial statements
 Financial information can be material in terms of its magnitude i.e. size or nature (or both).
 The conceptual framework for reporting doesn’t prescribe any threshold measurement for
materiality as it describes materiality as an “entity-specific” area of the relevance qualitative.

Professional Lecture Note extract 14 Ibrahim/2019

Financial Accounting Financial Reporting

Faithful representation
The financial information must be presented faithfully by representing the economic substance
of transactions i.e. the economic reality of the entity's affairs since the information is used for
economic decisions by most users
Faithful representation also requires that Information in the financial statement should be:
 As complete possible
 Neutral: treatment of the items is not based on bias
 Free from error

Enhancing qualitative characteristics

Comparability

The financial statement information should be presented to help users identify trends in
company’s position and performance.
The presentation of the financial statement information should exhibit the following comparability
characteristics:
 Consistent presentation
 Disclosure of accounting policy
 Comparison of financial statement of different entities should be possible

Verifiability

Verifiability means that different knowledgeable and independent observers should be able to
reach the same conclusion that the financial statement is faithfully prepared.
Verification can be direct or indirect
Direct verification is verifying of an amount or item by direct observation e.g. counting of cash,
counting of inventory, verifying the bank balance at a particular date, etc.
Indirect verification is the using of the financial statement information as an input to a model,
formula or other techniques, and recalculation of amounts using the same methodology
previously used, in order to confirm the information e.g. recalculation of closing inventory using
first in first out method.
The forward-looking financial information may not be verifiable, if such figures were used in the
financial statement; the following should be disclosed:
 Underlying assumptions
 Methods of compiling the information
 Other factors and circumstances that support the information

Timeliness
The financial statement information should be made available to the decision makers in time to
be capable of influencing their decisions

Professional Lecture Note extract 15 Ibrahim/2019

Financial Accounting Financial Reporting

Understandability
The financial statement should be prepared to help the user’s ability to understand the
information
Information should be presented to help users with economic activities and reasonable
knowledge of the business to understand the statements: however, some financial information
is inherently complex and cannot be made easy to understand, excluding such information
would render the financial statement incomplete and therefore, potentially misleading, it should
be recognised that, at times, even well-informed users may need to seek expert opinion to
understand some complex information in the financial statement
The financial statement should exhibit the following quality to help Understandability:
 Classification of items is important
 Presentation of information in a clear and concise manner
 Adequate disclosure of items in the note to the financial statement
It can be seen that the preparation of financial statement is regulated. Accountants often belong to
an accounting professional body such as ACCA, ICAEW etc. all accounting professional bodies
have code of conduct that must be follow at all time
There are five fundamental principles in most Code of Ethics and Conduct of professional bodies,
these are:

Integrity: A professional accountant should be honest and straightforward in performing their

professional services.

Objectivity: A professional accountant should be fair and not allow personal bias, conflict of interest
or influence of others to override objectivity.

Professional competence and due care: Members have a duty to maintain their professional
knowledge and skill at such a level that a client or employer receives a competent service, based on
current developments in practice, legislation and techniques. Members should act diligently and in
accordance with applicable technical and professional standards.

Confidentiality: A professional accountant should respect the confidentiality of information acquired

during the course of providing professional services and should not use or disclose such information
without obtaining client permission.

Professional behaviour: A professional accountant should act in a manner consistent with the good
reputation of the profession and refrain from any conduct which might bring discredit to the
profession.
Disciplinary regime
All accounting professional bodies have a disciplinary procedure in place to take action against
members, accounting firms and students where there is evidence of a sufficiently serious failure to
observe the code of conduct.

Professional Lecture Note extract 16 Ibrahim/2019

Financial Accounting Financial Reporting

Formats of the financial statements

Name of the company

Statement of profit or loss and other comprehensive income for the year ended……….

Sales Revenue (IFRS 15) xxxxx

Cost of sale (xxx)

Gross Profit xxxx

Other Income xxx

Administration Costs (xxx)

Distribution Cost (xxx)

Other expenses or adjustments (xxx)

Finance Cost (xxx)

Operating profit/(loss) before tax xxx/(xxx)

Income Tax (IAS 12) (xxx)

Profit for the year from continued operations xxxx

Profit/(Loss) from discontinued operations xxx/(xxx)

Period profit/(loss) xxx(xxx)

Other comprehensive income
Gain/(loss) on asset revaluation xx/(xx)

Others (according to various reporting standards) xx/(xx)

Total comprehensive income for the year xxx/(xxx)

Professional Lecture Note extract 17 Ibrahim/2019

Financial Accounting Financial Reporting

Name of the company

Statement of changes in equity as at the year ended……….
Ordinary
Share Revaluation Retained
share Total
premium reserves earnings
capital
Balance b/d xxxx xxx xxxx xxx xxxx

Prior year adjustment x/(x) x/(x)

xxxx xxx xxxx xxx xxxx

New issue of shares xxx - - - xxx

Premium on the new issue of

- xx - - xx
shares

Asset revaluation surplus - - xx - xx

Period profit/(loss) - - - xx/(xx) xxx

Dividend (paid + declared) - - - (xx) (xx)

Total xxx xxx xxx xxx xxxx

Consolidated statement of changes in equity

Foreign Cash
Share Share Revaluation Retained
NCI FVTOCI exchange flow
capital premium surplus earnings
translation hedge

Opening
xxx xxx xxx xxx xxx xxx xxx xxx
balance
Changes in
accounting - - - - x/(x) - - -
policy
Re-stated
xxx xxx xxx xxx xxx xxx xxx xxx
balance
Issue of
xx xx
shares
Profit/(loss)
x/(x) xx(xx)
for the period
Revaluation
xx
surplus
Dividends (xx)
Total
comprehensive xxx xxx xxx xxx xxx xxx xxx xxx
income for year

Transfer to
retained (xx) xx
earnings
Closing
xxx xxx xxx xxx xxx xxx xxx xxx
balance

Professional Lecture Note extract 18 Ibrahim/2019

Financial Accounting Financial Reporting

Company name
Statement of Financial Position as at the year ended ………….
Workings
Assets: $ $
Ref. No

Non-current asset

Plant, Properties and Equipment (IAS 16) xxx

Finance leased equipment (IFRS 16) xx

Investment properties (IAS 40) xx

Developmental expenditure (IAS 38) xx

Other IAS/IFRS non-current asset (e.g. IFRS 9) xx xxxx

Current assets
Inventory (IAS 2) xx

Trade and other receivables xx

Cash in hand and at bank xx

Short-term investments xx

Other IAS/IFRS current assets (e.g. IFRS 5) xx xxx

Total assets xxxx

Equity & liabilities:
Equity (share capital & reserves)
Ordinary share capital xxx

Share premium xxx

Revaluation Reserve xxx

Retained Earnings xxx xxxx

Non-current liabilities
Long-term Loan (Debenture) xxx

Finance leased obligation (IFRS 16)

Any other Long-term liabilities (e.g. deferred Tax) xxx

Current liabilities
Trade and other payables xx

Tax liability (tax payable) (IAS 12) xx

Any other current liabilities e.g. lease obligation xx xxx

Total equity & liabilities xxxx

Professional Lecture Note extract 19 Ibrahim/2019

Financial Accounting Financial Reporting

References

 International Financial Reporting Standards (2018), Official pronouncement, International

Accounting Standard Board Publication.

 Kaplan (2019), ACCA complete Text, Paper F7 Financial Reporting, Kaplan Publishing

 Kaplan (2019), ACCA complete Text, Paper P2 Corporate Reporting, Kaplan Publishing

 Tom Clendon (2011). The IASB’s Conceptual Framework for Financial Reporting (online).
Available at: www.accaglobal.com (assessed: 01/09/2015)

 Tom Clendon (2015). Concepts of profit or loss and other comprehensive income (online).
Available at: www.accaglobal.com (assessed: 01/09/2015)

Other websites
www.accaglobal.com

www.iasplus.com

www.google.co.uk

Professional Lecture Note extract 20 Ibrahim/2019